Until now, regulators around the world have tended to rule on what the airline industry may not do by way of competition and consolidation. Now it is time for a positive vision of what is allowable in the brave new world post-11 September.
If any good has emerged from 11 September then perhaps it is that there is finally something like a consensus that the industry needs to consolidate around fewer, stronger players. But it will not get there unless regulators are now prepared to lay down some hard rules by which that consolidation can take place.
To date, competition authorities around the world have been all too keen to rule on what airlines may not do by way of consolidation or aggressive competition. Now it is time to lay out what is allowable in the brave new world post-11 September. The lack of any global political vision has done as much as anything to keep the industry in a time warp of fragmented national markets.
Regulators and politicians on both sides of the Atlantic start the year with an excellent test case to hand. That is the renewed application by American Airlines and British Airways for antitrust immunity for their alliance, together of course with the US-UK open skies deal which is necessary to accompany it. The fact that the issue is still unresolved some five years after American and BA first unveiled their alliance is itself a testament to the debilitating fog which has surrounded such decisions.
Certainly it was Brussels rather than Washington that finally put paid to the original application by demanding that BA give up an economically unacceptable volume of slots at its London Heathrow hub. There may be good reason to prevent American and BA from gaining a dangerous dominance in the Atlantic, but many of the arguments on both sides looked suspiciously like political manoeuvring rather than hard analysis. While the decision grabbed headlines, helping to put Europe's competition directorate on the map as a force to be reckoned with, it added little if anything to the debate over the future direction of airline globalisation.
At the same time, Europe's then transport commissioner was eager to get rights to negotiate a regional air service agreement with Washington and so launched a court case against the US open skies deals then signed by the majority of European nations. That judgement too is now imminent.
The debate in Washington over American and BA has been no more objective. The Department of Transportation (DoT) has been under siege from rival carriers lobbying against the deal, while the Department of Justice (DoJ) has thrown in a few rocks in from the side.
Now it is again decision time and if anything there are stronger arguments than before as to why American and BA should not be denied their alliance. Not least is the prospect for genuine inter-alliance competition at Heathrow between oneworld and Star. That would be unique in Europe and uncommon anywhere, but is exactly the sort of environment that competition authorities should encourage everywhere.
If the application is turned down - or the barriers once again set too high for BA - the DoT needs to provide an alternative blueprint for how the industry is to achieve globalisation. And the same rules need to be applied universally.
It is time for greater clarity on the US front. For years the debate has raged over the next step in consolidation among the majors, as indeed it did last year. Ultimately, American was able to snap up TWA, but could not join with United Airlines in dismantling US Airways. For all the analysis and deliberations, it was surprisingly convenient that TWA was facing extinction while US Airways was not. Outlawing Northwest and Continental's marriage also preserved the status quo. If no further consolidation is to be allowed in the US market then so be it, but that needs to be part of a coherently argued policy not a matter of political convenience.
The same is true on predatory pricing - it certainly sounds like a sin but apparently one which lacks much by way of a clear definition. Again, the DoJ will shortly have a chance to remedy this, having reinstated a competition lawsuit brought against American in 1999 but thrown out again in April 2001. Whether it was right or wrong to bring the case, it should be decided so there are clear definitions and boundaries by which to compete. As Business Travel Coalition chairman Kevin Mitchell says: "It would be immensely important for the long-term health of competition in air transport if it were finally determined where the line can be drawn between aggressive competition and predation."
It will soon be time for the DoT to decide if it will issue its own guidelines on what constitutes fair competition. Drafts were prepared by the previous administration but dropped during its last hours in office.
Brussels too has unfinished business on slots, passenger rights and alliances. These need to be weaved together into joined up policy, and one which opens the way towards robust global competition between robust global players - not to mention a few low-cost bruisers into the bargain. That will ultimately do more for consumers than any amount of political tinkering.
Source: Airline Business
